CFPB Imposes Fine on National Bank for Alleged Illegal Overdraft Fees

On April 28, 2015, the Consumer Financial Protection Bureau announced a consent decree with a national bank regarding improper overdraft fees in violation of Regulation E, the implementing regulation of the Electronic Fund Transfer Act (“EFTA”). When a consumer does not have sufficient funds to cover a purchase or withdrawal, banks historically could either decline the transaction or permit the transaction to proceed by advancing the funds and subsequently seek recourse against the consumer. In the latter circumstance, banks were permitted to charge an overdraft fee. However, recent federal regulations prohibit banking institutions from charging overdraft fees for one-time ATM withdrawals or debit card transactions unless the consumer “opts in” for overdraft protection. In this case, the CFPB alleged that the national bank violated these regulations by charging overdraft fees to consumers who had not opted in to receiving overdraft protection. The bank allegedly charged the illegal overdraft fees to consumers with “linked accounts,” which permit deductions from consumers’ savings accounts when the checking account does not have sufficient funds to cover a transaction. The CFPB alleged that the bank charged overdraft fees to consumers when the consumer’s checking account and linked account had insufficient funds to cover the transaction. The CFPB also alleged that the bank failed to remediate the violation for nearly a year despite internal knowledge that the practice violated federal law. Finally, the CFPB alleged that the bank charged both overdraft and non-sufficient funds fees for consumers who purchased certain enhanced deposit accounts despite promising consumers that such fees would not be charged. The CFPB fined the bank $7.5 million, ordered the bank to pay full restitution to all affected consumers and correct errors on consumers’ credit reports. To date, the bank has paid approximately $48 million in restitution. The consent order also requires that the bank hire an independent consultant to ensure that it has paid restitution to all affected consumers.